Will farmers save water? A theoretical analysis of groundwater conservation policies

The development of agricultural irrigation systems has generated significant increases in food production and farm income. However, unplanned and unconstrained groundwater use could also cause serious consequences. To extend the economic life of groundwater, water conservation issues have become the main focus for the policy makers. Taking Ogallala aquifer in U.S. Southern Great Plains as an example, this paper analyzes whether current and potential groundwater conservation policies provide profit-driven farmers with incentives to save water. We adopt a theoretical approach to analyze farmer's optimal response when facing following policy alternatives, including (1) irrigation technology subsidy, (2) increased water cost, (3) unit subsidies for water saving, and (4) subsidies on water-conservative crop. Our findings suggest that the effects of water conservation policies vary by region. Specifically, the switching to higher efficiency technology should occur in a preventative stage for the water saving to occur. Similarly, an increase in water cost promotes water saving only when water resource is relatively abundant. In regions where groundwater already poses a constraint, the unit subsidy for actual water saved and price subsidy for water-conservative crops are more effective in achieving the water conservation goal.